THE Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular (RMC) No. 18-2011 providing for the requisites for income tax exemption of interest income earnings from long-term deposits or investment certificates under Section 24(B)(1) and 25(A)(2) of the Tax Code.
The following characteristics/conditions should be present to enjoy income tax exemption:
1. The depositor or investor is an individual citizen (resident or non-resident) or resident alien or nonresident alien engaged in trade or business in the Philippines and not a corporation;
2. The long- term deposits or investment certificates should be under the name of the individual and not under the name of the corporation or the bank or the trust department/unit of the bank;
3. The long-term deposits or investments must be in the form of savings, common, or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Central Bank of the Philippines (CBP);
4. The long-term deposits or investments must be issued by banks only and not by other financial institutions;
5. The long-term deposits or investments must have a maturity period of not less than five years;
6. The long-term deposits or investments must be in denominations of Ten Thousand Pesos and other denominations as may be prescribed by the CBP;
7. Only the interest income from long-term deposits or investment certificates are covered by income tax exemption;
8. Income tax exemption does not cover any other income such as gains from trading, foreign exchange gain etc.; and
9. The long-term deposits or investments should not be terminated by the investor before the fifth year, otherwise it shall be subjected to the graduated rates of 5%, 12% or 20% on interest income earnings.
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